The National Financial Reporting Authority imposed a penalty of 20 Lakh Rupees on Chartered Accountant and debarred the CA firm for professional misconduct of Engaging Partner (EP) in statutory audit of Seya Industries Limited.
The National Financial Reporting Authority (NFRA) had initiated investigation into the professional conduct of statutory auditors of Seya Industries Limited, Mumbai, for the FYs 2018-19 and 2019-20 under Section 132(4) of the Companies Act, 2013.
This was pursuant to information received from the Securities and Exchange Board of India (SEBI) hereafter dated 28.03.2023 about the non-compliance with the accounting standards by the company; misreporting in the financial statements; and non-cooperation by the auditor.
To investigate the professional misconduct, the audit files and some other information were called for from the EP. Despite repeated reminders, the EP did not submit the requisite documents and information. Thus, NFRA concluded that the EP either had no such documents with him or was unwilling to cooperate with NFRA in discharge of its statutory responsibility under section 132 of the Companies Act. On 22.09.23, a show cause notice for non-compliance was issued to the EP, which was not responded to.
The Order concluded that the failure of the EP to cooperate with NFRA, under section 132(4) of the Companies Act 2013, read with clause 2 of part-III of first schedule of The Chartered Accountants Act, 1949, i.e. failure to supply the information called for, or failure to comply with the requirements asked for is a professional misconduct.
It was noted by the three member bench of the NFRA that, “We conclude that the following failures on the part of CA Anil Chauhan as contained under the Articles of Charges in the SCN stand established:
i. Failure to exercise due diligence and being grossly negligent in the conduct of professional duties as defined by clause 7 of Part I of the Second Schedule of the Chartered Accountants Act 1949 because of the lapses and omissions as explained and proved in parts C above.
ii. Failure to supply the information called for, and non-compliance with the requests of NFRA, as defined in clause 2 of Part-III of First Schedule of The Chartered Accountants Act, 1949 because the EP did not co-operate with NFRA as explained and proved in parts B & C above.”
In result, the NFRA directed Imposition of a monetary penalty of Rupees Twenty Lakhs upon CA, the Engagement Partner. In addition, the CA and the audit firm were debarred for Ten years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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